UNDERSTANDING MARKETING MANAGEMENT fileLakme Sunsilk Fair & Lovely Pepsodent Axe Surf Liril Clinic...

03. PRODUCT

A Product is anything that can be offered to a market to satisfy a want or need.

Products that are marketed include physical goods, services, events & experiences, people, places, real &

financial properties, organizations, digital products, information and ideas. People satisfy their needs and

wants with products.

Five Product Levels

In planning its market offering, the marketer needs to think through five levels of the product. Each level

adds more customer value, and the five constitute a customer value hierarchy. The most fundamental

level is the core benefit: the fundamental service or benefit that the customer is really buying. A hotel

guest is buying ‘rest and sleep’. Marketers must see themselves as benefit providers. At the second level,

the marketer has to turn the core benefit into a basic product. Thus a hotel room includes a bed,

bathroom, towels, dresser and closets. At the third level, the marketer prepares an expected product – a

set of attributes and conditions buyers normally expect when they purchase this product. Hotel guests

expect a clean bed, fresh towels, working lamps and a relatively degree of quiet. At the fourth level the

marketer prepares an augmented product that exceeds customer expectations. A hotel can include a

remote control colour television set, fresh flowers in the room, fine room service etc. Today’s

competition essentially takes place at the product augmentation level and then again today’s augmented

benefits soon become expected benefits. At the fifth level stands the potential product, which

encompasses all the possible augmentations and transformations the product might undergo in the future.

Here is where companies search for new ways to satisfy customers and distinguish their offer. All-suite

hotels where the guest occupies a set of rooms represent an innovative transformation of the traditional

hotel product. Successful companies add benefits to their offering to satisfy and delight their customers.

Product Mix

A product mix (also called product assortment) is the set of all products and items that a particular seller

offers for sale. A company’s product mix has a certain width, length, depth & consistency. These

concepts are illustrated in the tables for selected HUL and ITC products.

Width: Total number of product

lines a company carries. Our

example shows HUL’s and ITC’s

product mix width as 7. They

have 7 product lines (Lines of

Business).

Length: Total number of items in

the mix. In our example of HUL,

it is 21. The average length of a

line is obtained by dividing the

total length by the number of lines. Here, it is 21/7 = 3.

Depth: How many variants are offered of each product in the lines. It is the assortment of sizes, colors &

variations offered for each product. (Lifebuoy Active comes in 3 sizes: 125gm, 100gm & 60gm cakes)

Consistency: Refers to the closeness exhibited by the product lines with respect to end use, production

requirements, distribution channels etc. (HUL product lines are consistent as they are consumer goods

distributed by the same channels but ITC product lines are inconsistent as they are widely varied in

nature.)

Product Mix of HUL (Illustrative Only)

Colour

Cosmetics Hair Care Skin Care Oral Care Deodorants

Soaps and

Detergents Toilet Soaps

Lakme Sunsilk Fair & Lovely Pepsodent Axe Surf Liril

Clinic Ponds Close-up Denim Rin Lifebuoy

Rexona Wheel Lux

Sunlight Pears

Vim Hamam

Savlon

Product Lines of ITC (Illustrative Only)

Cigarettes Garments Edible Oil Exports

(Sea Food)

Financial

Services Hotels Sports Gear

Core

Product

Basic Product

Expected Product

Augmented Product

Potential Product

BBA404 Marketing Management – I 03. Product of 12

Product Classifications

Marketers have traditionally classified products on the basis of characteristics: durability, tangibility and

use (consumer/industrial). Each product type has an appropriate marketing mix strategy.

According to durability and tangibility, products can be classified as - Nondurable, Durable and

Services:

Nondurable goods: Tangible goods that are normally consumed in one or few uses – eg. cold drinks, and

all FMCG (fast Moving Consumer Goods) like soaps, petrol etc. Since these goods are consumed quickly

and purchased frequently, the appropriate strategy is to make them available in many locations, charge

only a small mark up and advertise heavily to induce trial and build preference.

Durable goods: Tangible goods that normally survive many uses – eg. refrigerators, heavy machines.

Durable products normally require more personal selling and service, command higher margin and

require more seller guarantees.

Services: Intangible, inseparable, variable and perishable products – eg. haircuts, repairs.

Services normally require more quality control, supplier credibility and adaptability.

Characteristics of Services

Services are different from goods because they have five distinct characteristics: Intangibility,

Heterogeneity, Inseparability, Perishability, and Lack of Ownership.

Intangible: Unlike Products, that can be seen, heard, touched, smelt and/or tasted, Services are to be

experienced. Quality of service is not always strictly measurable. Different people may have different

expectations with regard the same service.

Heterogeneous: A machine can produce units identical in size, shape and quality. A human being cannot

work uniformly and consistently throughout the day. Since human beings offer a service, there is high

probability that the same level of service is not delivered all the time. Further, the service offered by

one employee of an organisation may vary from the service offered by another employee of the same

organisation.

Inseparable: A service is consumed by the customer as soon as it is delivered to him. Production and

consumption occur simultaneously. Since the delivery and consumption of a service are inseparable,

there has to be interaction between service receivers and service providers.

Perishable (Un-Storable): Unlike products, services cannot be inventoried or stored for future

consumption. The service provider looses on revenue if his service capacity is not fully utilised.

Lack of Ownership: Due to the intangible nature of services, service delivery, unlike product delivery,

does not ensure transfer of ownership. The challenge here is to make the customers believe that they are

being offered a unique piece of service. Unlike a motor car or a vacuum cleaner, services once

delivered cannot be returned or resold to a third party. They are enjoyed only once by the customer and

once consumed cannot be meaningfully transferred to third parties.

On the basis of Durability and Tangibility PRODUCT

On the basis of Use

Non Durable Goods Durable Goods Services Industrial Products Consumer Products

Materials and Parts

Raw Materials

Manufactured Materials

Capital Items

Installations

Equipments

Supplies and business Services

Operating Supplies

Maintenance and Repair Items

Maintenance and Repair Services

Business Advisory Services

Convenience Goods

Staple Goods

Impulse Goods

Emergency Goods

Shopping Goods

Homogeneous Shopping Goods

Heterogeneous Shopping Goods

Specialty Goods

Unsought Goods

Product Classifications

On the basis of Characteristics such as

Durability, Tangibility and Use


Extended Marketing Mix and Strategies for Services Marketing

In addition to the 4 elements of the Marketing Mix available to all marketers – Product, Price,

Physical Distribution, and Promotion – Marketers of Services are equipped with 3 Additional P-s

– Physical Evidence, Process, and People. The Extended Marketing Mix for Services Marketing

consists of 7 P-s.

Examples Of Service Industries

• Health Care– hospital, medical practice, dentistry, eye care

• Professional Services– accounting, legal, architectural

• Financial Services– banking, investment advising, insurance

• Hospitality– restaurant, hotel/motel, bed & breakfast; ski resort, rafting

• Travel– airline, travel agency, theme park

• Others– hair styling, pest control, plumbing, counseling services, health club, interior design

Again, Products can be classified into two more groups, according to use – industrial and consumer:

Industrial products are products that are purchased to produce other products or facilitate the smooth

running of an organisation. They are purchased to satisfy the organisation’s needs. Functional aspect of

the product is perceived to be more important when compared to the psychological rewards associated

with it.

Industrial products can be classified in terms of how they enter the production process and their

costliness:

Materials and parts: Goods that are completely used up for the production of a manufacture’s product.

They include raw materials such as fruits, iron ore and manufactured materials such as concentrates,

steel.

Capital items: Long lasting goods that facilitate the developing or managing the finished product. They

include installations such as factories, offices, generators and equipments such as hand tools, computers.

Supplies and business services: Short-lasting goods and services that facilitate the developing or

managing the finished product. Supplies include operating supplies like lubricants, fuel, writing paper

and maintenance and repair items such as nails, brooms. Services include maintenance and repair

services like window cleaning, computer repair and business advisory services such as leagal,

management consulting.

Consumer products are products that are used by the consumer for personal, family or household use.

Consumer products can be classified on the basis of shopping habits:

Convenience goods: Purchased frequently, immediately and with a minimum effort.

Convenience goods can be further divided. Staple Goods – purchased on a regular basis, eg. Colgate

toothpaste, Maggie Ketchup. Impulse Goods – purchased without any planning or search effort, eg.

Chloromint, Magazines. Emergency Goods – purchased when a need is urgent, eg. K.C. Paul’s umbrella.

Shopping goods: Purchased after comparing on such bases as suitability, quality, price and style.

Shopping goods can be further divided. Homogeneous shopping goods are similar in quality but different

enough in price to justify shopping comparison, eg. home appliances like television sets. Heterogeneous

shopping goods differ in product features and services that may be more important than price, eg.

cameras.

Specialty goods: Goods with unique characteristics or brand identification for which buyers are willing to

make a special purchasing effort. eg. Bose stereo components, Mercedes car.

Unsought goods: Goods that the consumer normally does not think of buying. eg. Smoke detectors.


BRANDING

A Product is anything that can be offered to a market to satisfy a want or need. A Brand is an offering from a known source.

As per the American Marketing Association definition, a brand is a name, term, sign, symbol, or design, or a combination of all of these elements that companies use to convey the identity of its goods or services to customers

and differentiate them from the products or services of the competitors.

Marketers can apply branding virtually anywhere a consumer has a choice. Scope of branding includes physical

goods (Maruti Car, Kissan Jam, Cinthol Soap), services (Axis Bank, Jet Airways, First Flight Courier Services),

stores (Big Bazaar, Spencer's, Shoppers' Stop), people (Aamir Khan, Sachin Tendulkar, Kareena Kapoor), places ( Incredible India, Kerala-God's own Country, Ahmedabad City), organisations (UNICEF, Ramkrishna Mission), or

ideas (Blood Donation, Fight Against Aids). A brand ensures customer loyalty for the companies. Consumers

identify a brand's distinctive capabilities based on their perceptions that have been created by the marketers over a period of time.

A brand name such as Dettol carries many associations in the minds of people: wounds, getting hurt while playing,

burning sensation and very effective anti septic. These associations make up the Brand Image. All companies strive to build Brand Strength – that is a strong, favourable brand image.

Brand Equity Brand Equity refers to a set of assets and liabilities linked to a brand – its name and symbol – that add to (or

subtract from) the value provided by a product or service. Brand equity is the combination of assets and liabilities

associated with a brand that enhances or depreciates the value of the brand. It may be reflected in the way consumers think, feel, and act with respect to the brand, as well as in the prices, market share, and profitability the

brand commands for the firm. Brand equity provides (or negatively subtracts) value to a firm in the form of price

premium, trade leverage or competitive advantage. The equity of a product has five major determinants –

awareness, quality perception, loyalty, patents, and trademarks.

Trade Mark Registered brands are known as trademarks. When a brand is registered and legalised it becomes a trademark. For

popular brands, that are more susceptible to imitation, trademark is a legal right to protect the brand name or the

other brand elements. Trademarks assure the customeres that they are purchasing an authentic brand at a time when piracy is evidently on the rise.

Types of Brands

There are three major types of brands: manufacturers' brand, resellers' brands and generic brands.

Manufacturers' brands are those that are branded directly by the manufacturers who have invested heavily on

building them. Surf, Rin, Lux, Colgate, Cadbury's, Coca-Cola, Pepsi etc. are examples of manufacturers' brands. Resellers' brands are those brands that are developed and owned by the resellers. Big Bazar, Shopper's Stop,

Spencer's etc. have their own brands.

Generic brands are associated with products like rice, wheat, doormats, broomsticks, paper napkins etc. which are not specifically advertised and are sold by grocery stores at a lower price than those of identical branded products.

Selection of Brand Name

Brand elements are those trademarkable devises that identify and differentiate the brand. Most powerful brands

employ multiple brand elements - name, term, sign, symbol, slogan, or design – to create a strong and favourable

image in the minds of the target group of consumers. Nike has the distinctive 'swoosh' logo, the empowering 'Just Do It' slogan, and the 'Nike' name based on the winged goddess of victory.

Selection of the brand elements is crucial for the success of a brand. The brand name should be such that it arouses

curiosity when heard. A brand name which arouses curiosity will attract the attention of the target audience. The brand name should also identify itself with the sign or motto of the organisation. The brand name should be able to

evoke the intended association with the product offerings or features. The brand name should be such that it

distinguishes itself from other brands. For products meant for international markets, it is crucial to select appropriate brand names that convey the right meaning in those markets. The brand name should be legal, ethical

and available.

There are six main factors to be considered before the brand elements are selected. The first three – memorable, meaningful, and likable – are 'brand building' and the remaining three – transferable, adaptable, and protectable –

are 'defensive'.


Memorable: It is important to ensure that the brand name is easy to remember. It should have an easy recall value

and people should be able to spell and pronounce it easily. Short brand names such as Lux, Sony, Taj are memorable brand elements.

Meaningful: The company has to ensure that the brand name is related in some way to the products the company is

offering. Sony derived its brand name from the Latin word 'Sonus' which means sound. Compaq signifies compactness of communication. Based on the name alone, a consumer might expect ColorStay lipsticks to be long

lasting. Fair & Lovely fairness cream is suggestive of the benefits the product delivers.

Likable: The brand elements should also be aesthetically appealing. It has to be likable visually and verbally. Brand

names such as Scorpio and Splendor evoke much imagery. Transferable: A brand element should be broad enough so as to be able to be used to introduce new products in the

same or different categories. The name Amazon.com, based on the world's biggest river, was broad enough to

allow the company to introduce diverse range of products to be sold from its portal. Adaptable: The brand elements' adaptability is also to be considered. Lifebuoy was first launched in 1895 as a

'health' soap. It underwent a major change in 2002. Although the product formulation, packaging etc. have changed

to synchronise with the changing consumer perceptions and preferences, the brand continues to maintain its core value proposition of 'health'.

Protectible: Brand elements should be legally protectable. Names that become synonymous with product

categories – such as Xerox, Colgate, Surf, and Fiberglass – should retain their trademark rights and not become

generic.

Branding Decisions A marketer trying to brand a product has to consider certain decisions. The important decisions are whether to

brand the product or not, and if it should be branded, whether it should be a manufacturer's brand or a distributor's

brand or a licensed brand. A decision has to be taken whether the company should adopt a blanket family brand name like Tata, or individual brand names as used by HUL (Surf, Rin, Lux, Colgate). The company should also

consider at what intervals it should come out with line extensions or brand extensions as well as when to reposition

the brand.

A firm deciding to brand its products may choose from four commonly used strategies: Individual names: This strategy is also refered to as 'House of Brands'. Hindustan Unilever Limited has several

individual brands in different product categories such as Lux (toilet soap), Rexona (deoderant), Ponds (skincare),

Surf (detergents) and Sunsilk (haircare). A major advantage is that the company does not tie its reputation to any product. If a product fails, the company's name or image is not hurt.

Seperate family names for all products: This strategy comes in between the Individual names strategy and the

Blanket family name strategy. The Aditya Birla Group uses seperate family names for its various products such as Hindalco (aluminium), Ultra Tech (cement), and Graviera (suitings). If a company produces a diverse range of

products, one blanket name is often not desirable.

Blanket family names: This strategy is also referred to as 'Branded House'. The blanket family name Tata is used

in diverse product categories such as salt, tea, automobiles and steel. Development costs are lower with blanket names because there is no need to run name research or spend heavily on advertisement to create recognition.

Corporate name combined with individual product names: This strategy combines the Individual names

strategy and the Blanket family name strategy. Kellogg combines corporate and individual names in Kellogg's Rice Krispies, Kellogg's Raisin Bran, and Kellogg's Cornflakes, as do Honda and Sony for their products. The company

name legitimizes, while the individual name individualizes, the new product.

Branding Strategies

Line extension: A company may introduce additional items in an existing product category under the same brand

name. Coke was an existing brand. When CocaCola introduced DietCoke it was an instance of line extension. Brand extension: A company may use its existing brand name to launch new products in other categories. Rexona,

having established its deoderants and deo sprays, launched soaps under the same brand name. Ponds launched a

varied category of products viz. Cold cream, soap, powder etc. under the same brand name. Multi brand: Companies may often introduce additional brands in the same product category. HUL markets

several branded soaps under its toilet soap category. This helps in introducing different features and ultimately

appeals to different buying motives. New brand: Comapanies launching new products in a new category may not want to use the current brand name as

it may not be suitable. So, they adopt ndew brand names. Tata used a new brand name, 'Ginger' to launch their new

no frills hotels. Companies may also use seperate brand names for every product that they launch. HUL uses a

seperate brand name for every new product that they launch.


PACKAGING

Packaging may be defined as the general group of activities in product planning which involve designing and

producing the container or wrapper for a product. Packaging is the art, science and technology for preparing goods for transport and sale.

Functions/Purpose of Packaging

The basic function of any package is to protect its contents in transit, storage and use. Packaging also facilitates

easy handling and use of the product. Sometimes referred to as 'a five seconds commercial', a package also serves the functions of attracting a customer, informing him about its contents and use, and motivating him to make a

buying decision. The different purposes and functions of packaging may be to protect, to appeal, to perform, to

offer convenience, and to be cost-effective.

Packaging may also provide with immense innovation opportunities. It serves as an effective differentiating tool (like when Parachute introduced their coconut hair oil in a new look plastic container to differentiate their brand

from the existing tin container marketed by Shalimar). Packaging also helps in positioning (Pepsodent prints

cartoon characters on the packet for their Pepsodent Junior toothpaste). Some important functions of packaging are as follows:

To assemble and arrange the contents in the desired form.

To protect the contents from production time to final use.

To identify the contents, the brand and the maker.

To provide a suitable product mix including sizes, weights, prices and grades.

To facilitate transporting, storing and warehouse handling.

To facilitate the retailer to store and sell goods easily.

To enable the display of the contents.

To encourage the customers for repurchase.

To help in complying with legal requirements.

To provide opportunity and space for advertising.

LEVELS/Types of Package

Types of packaging will largely depend on the nature of the contents in terms of their value, physical composition

and durability. The length of the distribution channel, the amount of handling which the container will receive, and the variation in climatic conditions should also be taken into account while designing a package. Packaging

includes the activity of designing and producing the container for a product. The container is called the

PACKAGE and it may include up to three LEVELS of material.

Primary Package: It is the first level of container which contains the product and without which the

product cannot be sold. The toothpaste tube, cold drink bottle etc are examples of primary packaging.

Secondary Package: The container that contains the primary package is called secondary package. It is an optional level of packaging. While a toothpaste tube is packed in a secondary package – the card

board box, cold drinks manufactures skip the secondary level of packaging.

Shipping Package: This type of packaging is used to transport the primary and/or secondary packages

in bulk. A number of toothpaste boxes are packed into a carton, and a number of cold drink bottles are arranged in a crate in order to facilitate transportation and distribution.

NEW PRODUCT DEVELOPMENT

What is a new product

Products those are new to the world. Less than 10% of all new products are new to the world.

New product lines - products that are new to the company but not new to the market. Helps the

company to enter established markets.

Improvements/modifications of existing products.

Additions to existing product lines - line extension e.g. New packs, flavours, etc.

Repositioning: Existing products targeted to new market segments.

To the Market

New Existing

New

Existing

To th

e Com

pan

y

New to the world Improvement/Modification/

New Product Lines

Repositioning Line Extensions


Why are new products needed

Every product goes through a life cycle and eventually dies. So, new products must be developed

to maintain/ increase sales and to serve customers better.

Customers want new products

Competitors will try their best to supply new products

The future of the company will depend on new products

New Product Development Process Idea Generation

Idea Screening

Concept Development & Testing

Marketing Strategy Development

Business Analysis

Product Development

Market Testing

Commercialization

Idea Generation

Interacting with others: Customers, scientists, competitors, employees, channel members,

consultants, top management, engineering, patent attorneys, universities, commercial

laboratories

Marketing Research can throw light on new product possibilities

New product ideas in industrial product area are often suggested by customers who make the

most advanced use of existing products

Competitors’ products can be researched to find new product ideas

Company’s salespeople & channel members can be tapped for new product ideas

Often companies encourage all employees to officially submit suggestions that could lead to

new ideas

Creativity Labs: Several techniques are used to stimulate creative thinking in individuals and

in groups

The company should appoint a senior and respected idea manager to institutionalize New

Product Development

Some companies appoint a cross-functional team to act as an Idea Management Committee. It

consists of people from R&D, engg, purchasing, product, finance, marketing. It meets on a

regular basis to evaluate new product ideas

Some companies reward & recognize contributors of the best new idea

Idea Screening:

If the purpose of the idea generation stage is to generate as many new ideas as

possible, the purpose of all subsequent stages is to reduce the number of ideas

Each new idea is evaluated against a set of criteria. The ones that receive low ratings are

dropped. The ones that survive move on to the next stage

In evaluating new ideas, the criteria could be as follows: (i) Will the new idea be truly useful to consumers and to the society?

(ii) Is it a good idea for our Company?

(iii) Does it gel with the company’s objectives?

(iv) Do we have the right people, skills and other resources? (v) Will it deliver more value to consumers than existing products?

(vi) Can it be easily marketed?

In screening ideas, the Company needs to avoid 2 types of errors - the Go error & the Drop error


A Drop error occurs when the company drops an otherwise good idea due to lack of

imagination, vision & foresight (i) The idea of copying documents was seen by Xerox but IBM & Eastman Kodak failed to see it.

(ii) The idea of a home PC was overlooked by IBM but Compaq saw it.

A Go-error occurs when the Company allows a poor idea to move into development &

commercialization. Product development costs rise substantially through the successive

stages.

Concept Development

An attractive idea has to be developed into a product concept.

A product idea is more generic, a product concept is more specific. It is a possible version of an actual

product stated in meaningful consumer terms. (1) Yoghurt with exotic flavours - if projected as a nutritional dessert, it will have to compete with

curd, custard etc. If projected as a casual fun–filled snack, it will have to compete with ice–

cream, scoops, even non-alcoholic beverages

(2) Milk Shake: a breakfast drink, casual drink, bedtime drink, health drink

A product idea can give rise to alternative product concepts

The product concept will then have to be turned into a brand concept by

choosing a positioning based mainly on functional terms

Concept Testing

It involves presenting alternative product concepts to target consumers for their reactions symbolically or

physically

The more the concepts being tested resemble the final product, the more reliable concept

testing is

At the least, concept testing involves presenting target consumers with a detailed written

description of the physical product - its nature, its benefits, its features, its packaging, its

shape and its price

For some products a written or a pictorial description may be good enough. Some

companies develop physical prototypes by using CAD/CAM

Some companies even use virtual reality for concept testing

Having exposed target consumers to the product concept, they are asked to react to them

by answering questions like

(a) Do you understand the concept? (b) Do you believe in its advantages?

(c) What are the major benefits seen in it? (d) What are its advantages over….?

(e) Who will decide to buy it? (f) How will you use it? (g) Who will use it?

(h) What improvements will you suggest? (i) Would you buy it?

(j) What should be a reasonable price for a product like this?

The answers will help the company to decide which concept has the strongest appeal

However, the most customer-appealing concept may not be the most profitable concept for

the company because of cost considerations

Marketing Strategy Development

The marketing strategy statement has 3 parts:

Part – 1: Describes the target market, the planned product positioning, the sales, market share & profit

goals for the first few years

Part – 2: Outlines the product’s planned price, distribution, ad and sales promotion budget, MR budget

for the first year

Part – 3: Describes planned long–run sales, profit goals & marketing mix strategy

Business Analysis

At this stage, the company projects sales, costs and profits to see if company goals are met. If

they do, the concept is taken up for development

Management will now have to forecast sales for, say, the next 5 years

Costs are estimated by R&D, Production, Marketing, Finance depts.


Sales, Cost & Profit Projections

Year 0 Year 1 Year 2 Year 3

Sales Revenue

COGS

Gross Margin

Development Cost

Marketing Costs

Allocated O/H

Net Margin

Discounted cash inflow

Cum. disc. cash inflow

From this projection, the max. investment risk (the most negative cumulative discounted cash

inflow) is ascertained. This is an indication of the max. loss that the company can incur from this

product. The other thing is the payback period, i.e. when does the cum.discounted cash inflow

turns positive from negative. Other simple yardsticks like the BEP is estimated given the price &

cost structures.

Product Development

Up to now, the product has existed only as a description on a drawing or as a prototype

This step sees a large jump in investment

The R&D dept now develops one or more physical versions of the product concept.

The prototype is tested within the firm to check if it performs under different adverse conditions

(Alpha testing)

The prototype may be modified subject to alpha testing and then moved to customers for beta

testing Customer testing can take several forms. They can be brought to the lab or they may be

given samples to use at home. In-home and in-store tests are also quite common

Customer attitudes and purchase intentions are measured using MR techniques like Ranking,

Paired Comparisons, Semantic Differential Scales, etc.

Market Testing

From alpha & beta testing, if the company is satisfied that the prototype has delivered functional

and perceived benefits, then it is developed into a full–scale product with a packaging and a brand

name and is put in a real life market setting to learn about its potential and how consumers and the

trade react to it.

In market testing of consumer goods, firms are interested to find out trial, 1st repeat purchase,

adoption & purchase frequency

Some of the commonly used methods of market testing are -

i. Sales Wave Research

Some chosen potential customers are offered the product free. They are

expected to report their experience after use.

ii. Simulated Test Marketing

30-40 target customers are shown ads for the new product ads of competitive brands

They are then given a small amount of money and invited to a store where they can buy

any product

The company notes how many people buy the new brand

iii. Controlled Test Marketing

A panel of stores is selected to carry the new brand for a fee for certain duration. The

shelf–positions, no. of facings, POP displays, etc. are controlled.

iv. Full–Scale Test Marketing

The company chooses one or a few representative markets where the brand is launched

with full advt. and sales support

Commercialization

This step involves the largest cost


The firm has to set up manufacturing facilities or contract manufacturing. If a plant has to be set

up, its location and capacity are crucial issues to be decided. Plant size and capacity will depend

upon both short and long–run demand forecasts.

Marketing is another major cost. e.g. in introducing a new food product, expenditure typically

represents 55–60% of sales during the first year

The Co will spend heavily on MR in the first year to buy retail audit reports.

“Timing” the launch is an important decision which also depends on competitors’ moves. The

timing may be tuned to take advantage of ‘seasons’.

The “where” question is also important. Most companies develop a phased roll–out over time.

The new product may be launched in a city or a state or a region or nationally

Company size plays a role in this. Small companies roll out new products in a small market and

move to adjoining markets. Big companies with strong distribution network launches in a region

or in a few states.

The question of “to whom” needs to be addressed. The company should aim promotion and to

attract the early adopters, opinion leaders and the heavy users in its target group

“How”? To co-ordinate the various activities involved in launching a new product, the company

can use network–planning techniques such as PERT or CPM.

PRODUCT LIFE CYCLE (PLC)

The product life cycle is an important concept in marketing. It describes the stages a product goes

through from when it was first thought of until it finally is removed from the market. Not all products

reach this final stage. Some continue to grow and others rise and fall.

Just as businesses go through stages, so do products and services. The product or service life cycle is

determined by how long it is marketable. The life cycle of the TV cathode ray tube (CRT) is coming to an

end as more and more flat screens are being purchased. The life cycle of voice-over IP telephone service

is entering its growth phase as more and more people try it out. A branded good can enjoy continuous

growth, such as Microsoft, because the product is being constantly improved and advertised, and

maintains a strong brand loyalty. Knowing where your products or services are in their life cycle will

help you determine refinements or adjustments you may need to make to align them with the vision and

strategy you have already developed.

To say a product has a life cycle is to assert four things:

1. Products have a limited life.

2. Product Sales pass through distinct stages, each posing different challenges & opportunities to the seller.

3. Profits rise and fall at different stages of the product life cycle.

4. Products require different strategies in each stage of their life cycle.

The PLC concept can be used to analyse product category, product form, a product or a brand:

Product categories have the longest life cycles. Many product categories stay in the mature stage

indefinitely. Typewriters seem to have entered the decline stage of the PLC whereas mobile phones, fax

machines, bottled drinking water are clearly in the growth stage.

Product forms follow the standard PLC more faithfully. Manual typewriters passed through the 4 stages;

their successors – electric typewriters and electronic typewriters – passed through these same stages.

Products follow either the standard PLC or one of several variant shapes.

Brands can have a short or long PLC. Although many new brands die an early death, some brand names

– like Cadbury’s, Colgate, Surf – have a very long PLC and are sometimes used to launch new products.

Most product life cycle curves are portrayed as bell shaped. This curve is typically divided into four

stages: introduction, growth, maturity and decline.

Introduction – researching, developing and then launching the product

Growth – when sales are increasing at their fastest rate

Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new

competitors in market or saturation

Decline – final stage of the cycle, when sales begin to fall


Sales

Profit

Introduction: A period of slow sales growth as the product is introduced in the market. Profits are low or

non existent in this stage because of the heavy expenses incurred in set-up cost and advertising. Research

and development, production, and marketing costs are high. Prices are set high on the product or service

to recoup some of the development and introduction costs. For example microwave ovens that can now

be purchased for Rs.7,000/- were priced between Rs.12,000 andRs.15,000 when they were first

introduced. In this stage, you’ll want to keep a close watch on the market’s reaction to your products and

services and be ready to make changes. It sometimes helps to experiment with several different product

and service configurations to see what works in these early stages.

Growth: A period of rapid market acceptance and substantial profit improvement. Sales generally

increase with the demand for the product. Cash flow improves and profits are at their peak. When real

estate is being developed, there is an increased demand for construction and the products and services

that support the development. Continue to make refinements to stay ahead of the competition. Build

product & service development capabilities with the cash received from increasing sales.

Maturity: A period of slowdown in sales growth because the product has achieved acceptance by most

potential buyers. Profits stabilise or decline because of increased competition. Sales may continue to

increase or level off. Profits decrease since prices are continually lowered to compete. Still, a great

amount of cash flow is generated through sales. Conduct market research to determine trends. Invest in

research and development. Adapt your product or service to meet the coming trends. If you don’t look for

new opportunities in new markets and new products, the coming decline stage will leave you with

products and services that no longer sell.

Decline: The period when sales show a downward drift and profits erode. Sales drop rapidly even though

prices continue to fall. Profits are extremely low at this stage, but the product or service has generated

sufficient cash flow during its life. When a product or service hits this stage many entrepreneurs

reintroduce it with a new feature or create a new benefit. Simply increasing the size of a candy bar by 33

percent can start its life cycle over again. Consider making changes to your product or service or the way

you market it. You may decide to discontinue your product or service before losses eat into the cash flow

generated by sales.

Marketing Strategies at different stages of PLC Some key features of each stage in the PLC along with their relevant strategies can be summarised as follows:

Introduction Stage •New product launched in the market •Low level of sales

•Low capacity utilisation

•High unit costs - teething problems occur

Relevant strategies at the introduction stage might include: Aim – to encourage customer adoption

High promotional spending to create awareness and inform people

Either skimming or penetration pricing

Limited, focused distribution

Demand initially from “early adopters”

Intro

duction Growth Maturity Decline

Sales &

Profits

Time

•Usually negative cash flow

•Distributors may be reluctant to take an unproven product

•Heavy promotion to make consumers aware of the product


Growth Stage •Expanding market but arrival of competitors

•Fast growing sales

•Rise in capacity utilisation

•Product gains market acceptance

•Cash flow may become positive

•Unit costs fall with economies of scale

•The market grows, profits rise but attracts the entry of new competitors

Relevant strategies at the growth stage might include: Improve the product - new features, improved styling, more options Improve Product Quality, Add New Product

Features, Improve Styling.

Add New Models and Flanker Products.

Enter New Market Segments.

Increase Distribution Coverage, Enter New Distribution Channels.

Shift from Product Awareness-Advertising to Product-Preference Advertising

Lower Prices to attract the next layer of Price-Sensitive Buyers.

Maturity Stage •Slower sales growth as rivals enter the market = intense competition + fight for market share

•High level of capacity utilisation

•High profits for those with high market share •Cash flow should be strongly positive

•Weaker competitors start to leave the market

•Prices and profits fall

There is a wide variety of possible options for a product that has reached the maturity stage: Market Modification

Product Modification

Marketing Mix Modification.

Rationalisation of capacity

Competitor based pricing

Promotion focuses on differentiation

Product differentiation & product improvements

Extension Strategies

These extend the life of the product before it goes into decline. Again businesses use marketing techniques to improve sales.

Examples of the techniques are:

Advertising – try to gain a new audience or remind the current audience

Price reduction – more attractive to customers

Adding value – add new features to the current product, e.g. video messaging on mobile phones

Explore new markets – try selling abroad

New packaging – brightening up old packaging, or subtle changes such as putting crisps in foil packets or Seventies

music compilations.

Decline Stage •Falling sales

•Market saturation and/or competition

•Decline in profits & weaker cash flows

•More competitors leave the market

•Decline in capacity utilisation –switch capacity to alternative products

Potential strategies are: Harvest by spending little on marketing the product

Rationalise by weeding out product variations Price cutting to maintain competitiveness

Promotion to retain loyal customers

Persuasive advertising

Intensive distribution

Enter new segments

Attract new users

Repositioning

Develop new uses

Distribution narrowed

Decrease the Firm’s Investment

Divesting the Business quickly by disposing off its assets

advantageously.

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